There is an interesting recent article in EE Times called “Are ESL and DFM false hopes?” Richard Goering poses the question whether Electronic System Level Design (ESL) and Design for Manufacturability (DFM) software can save the EDA industry, seemingly caught in a spin cycle of same ol’ same ol’, fierce price competition, high cost of sales, and an overall unattractive future.

Here are four things that I think ought to happen:

First, Mentor needs to cease to exist (chopped up and sold off by an LBO firm), thereby releasing some of the unnecessary price-competition in EDA software. Magma needs to be acquired by one of the other two EDA giants, Cadence or Synopsys, achieving more of the same effect. Likely, this will adjust some of the structural disfunctions of the industry, and render better P&Ls.

Second, EDA ought to merge with the IP Industry, and consolidate the sales channel. The players of significance are ARM, Virage, and a host of smaller ones like DSP IP vendor CEVA and Microprocessor core vendor MIPS.

Third, this combined industry should then merge with the Semiconductor Equipment industry, providing a seamless “Chip Infrastructure Portfolio”. Who ought to merge with whom will depend on how the First and Second steps pan out. Key questions like who gets Calibre, Mentor’s DFM franchise, will determine a few of the follow-on steps.

Finally, the Packaging Foundries need to be worked into this consolidation process, as a highly strategic piece of the Chip Infrastructure Portfolio. With chip packaging becoming more complex, the Amkors and Chip Pacs of the world have become eminently critical pieces of the equation.

Bottomline: Incremental steps have got us this far. They won’t suffice in the longer term. Bigger, bolder moves are necessary.

Comments

Here is an interesting article on why TSMC should buy Cadence. EDA exiting into the Foundry world is a perfectly legitimate option, and may end a lot of woes by verticalizing the design-manufacturing infrastructure.

Actually, my analysis has little to do with the combined revenue of the top three players. It has everything to do with lack of growth, a flat stock price over many years (Mike Fister commented jokingly: “If I had seen this 10-year stock performance chart, I would not have taken the job!”), and a very unattractive P&L structure.

Actually, Synopsys *is* the second largest IP provider behind ARM so your second contention is moot. And CDN & SNPS are both moving aggressively into DFM (mask manufacturing) so contention three is a given. Not sure about MENT’s fate, but an LBO has never happened in EDA, why would this happen now?

What about suggestions on how EDA can grow ‘organically?’ I mean, any ideas about new technology and therefore new services/tools which can sell for higher margins and therefore obviate the need for financial growth like the contentions you have listed?

Think bigger… please!

EDA lifer?Monday, October 10, 2005 at 2:05 PM PT

But Synopsys is only a very distant second, behind ARM. I don’t see how one disregards this fact. If Cadence and ARM were to merge, Synopsys would be an even further distant second in the combined EDA+IP space.

Tech LBOs are happening now, in droves, for obvious reasons (industry maturity) so your point that something hasn’t happened before, why would it happen now, rather, is moot, isn’t it?

Why does EDA need to survive as a separate industry, and avoid the inevitable consolidation that happens in all mature industries? … To protect the interests of the “smaller” thinkers and special interest groups, I suppose??

[…] I have often said in the past that Cadence should buy ARM. At this point, given how solid the mobile and consumer electronics businesses look for the foreseeable future, an extremely compelling way to modify the business model of the EDA business, and for Cadence to get itself leverage would be to acquire this company. […]

[…] I have often said in the past that Cadence should buy ARM. At this point, given how solid the mobile and consumer electronics businesses look for the foreseeable future, an extremely compelling way to modify the business model of the EDA business, and for Cadence to get itself leverage would be to acquire this company. […]

[…] from Hyper Analytix. Though the EDA industry has powered much of the growth of Hi-Tech thus far, as Sramana Mitra puts it – (snip)EDA industry, seemingly caught in a spin cycle of same olâ€™ same olâ€™, fierce price […]

[…] have often talked about consolidation within the EDA industry as the first step to improving its future and the possible buy-out of Mentor Graphics. With the recent announcement of Cadence’s hostile […]

[…] and 3% sequentially in the current quarter, with June growth of 8%. Despite this, my stand on the EDA industry is still gloomy. It is not a case of Mentor, Synopsys or Magma being individually poor performers, but more a case […]

[…] 10 in the industry. For the semiconductor infrastructure stocks, here is a list of top 9 in the EDA, ATE and manufacturing equipment space, which may not be a healthy industry, but is still a must-have industry, especially as […]

EDA is a tools industry with a niche customer base. Tool industry are just that. they have a limit on growth particularly when your client base needs so much capital. chip startups are down and would continue to shrink as chip design becomes more expensive. The number of tool users and number of chip designed is going to fall. The EDA industry has a ceiling. No developer tools company goes beyond a fraction of its clients market.

Cadence can acquire ARM and get into the IP space (though its more likely to be the other way around). you are just trying to expand the definition of EDA not the market. EDA companies can get into automobiles (more than now), power, or bio-informatics. This may add shareholder value but this will not expand the “EDA” market. EDA will pretty much stay where it is. You will have more sectors ADA (Automobiles Development automation) or so on.

In the same vein semiconductor companies can acquire EDa houses: say Intel buys Synopsys and TSMC buys Cadence. This will not expand EDA market even if these companies continue to provide tools for other semi companies. Tools industry has a ceiling and EDA is pretty much near it.